The following testimony was submitted by the Grassroot Institute of Hawaii for consideration March 22, 2022, by the Senate Committees on Commerce and Consumer Protection and Energy, Economic Development, and Tourism.
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To: Senate Committee on Commerce and Consumer Protection
Sen. Rosalyn H. Baker, Chair
Sen. Stanley Chang, Vice Chair
Senate Committee on Energy, Economic Development, and Tourism
Sen. Glenn Wakai, Chair
Sen. Bennette E. Misalucha, Vice Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
RE: SCR30/SR25 — REQUESTING THE DEPARTMENT OF COMMERCE AND CONSUMER AFFAIRS’ DIVISION OF FINANCIAL INSTITUTIONS AND THE HAWAII TECHNOLOGY DEVELOPMENT CORPORATION TO EXTEND THE DIGITAL CURRENCY INNOVATION LAB PILOT PROJECT
Comments Only
Dear Chair and Committee Members:
The Grassroot Institute of Hawaii would like to offer its comments on SCR30 and SR25, which urges the state Department of Commerce and Consumer Affairs to extend the Digital Currency Innovation Lab pilot project for two more years.
In 2019, Gov. David Ige authorized on a temporary basis the “Digital Currency Innovation Lab,” a regulatory “sandbox” that allowed certain cryptocurrency companies to do business in Hawaii without being subject to the money-transmitter law’s double-reserve requirement. Since the lab’s inception, 61,000 Hawaii customers have been able to access digital currency and complete more than $611 million in transactions.
Unfortunately, the sandbox experiment will end at the close of 2022. Without further action, cryptocurrency will once again become inaccessible for Hawaii residents. Moreover, the state will lose access to the economic benefits of this rapidly expanding industry.
In 2017, Hawaii lawmakers in both chambers approved an exemption for cryptocurrency from the state’s Money Transmitters Act,[1] but the exemption was deleted in conference committee before the bill was enacted. Iris Ikeda, commissioner of the state Division of Financial Institutions, stated at the time that lawmakers should first study the issue via a “Decentralized Virtual Currency Working Group.”
“DFI believes that the most prudent approach would be to allow the DVC Working Group the opportunity to perform its review and to provide the Legislature with findings and recommendations prior to the creation of an exemption for decentralized virtual currency,” she said.[2]
Now that the issue has been studied via the Digital Currency Innovation Lab, lawmakers can feel confident about following the example of 20 other states by exempting cryptocurrency from the state’s Money Transmitters Act.[3] With this one change, Hawaii would go from one of the most burdensome states for cryptocurrency to one of the best.
After Wyoming exempted cryptocurrency companies from its double-reserve requirement in 2018, it was dubbed one of the country’s “most crypto-friendly” jurisdictions. [4]
Cryptocurrency is a developing industry that moves as quickly as the technology involved. The delay caused by the Legislature’s inaction may cause Hawaii to fall further behind.
The best approach would be to move forward with legislation that would simply exempt cryptocurrency companies from the state Money Transmitters Act.
However, since that appears to be no longer possible during the current legislative session, the second-best approach would be to extend the life of the Digital Currency Innovation Lab, perhaps even encouraging the Department of Commerce to broaden the scope of the lab and allow greater participation. This would allow the Legislature to further observe the effect of the lab in action while settling on more ideal legislation.
Thank you for the opportunity to submit our comments.
Sincerely,
Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[2] Iris Ikeda, Division of Financial Institutions commissioner, “Testimony on SB949, SD1 HD1,” Hawaii State Legislature, March 31, 2017. See also, “Conference Committee Rep. No. 78,” Hawaii State Legislature, April 27, 2017.
[3] States that do not require a money-transmitter license for virtual currency transactions include Arizona, Arkansas, California, Colorado, Idaho, Illinois, Kansas, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, North Dakota, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and Wisconsin. See “Cryptocurrency laws by state,” Shipkevich Attorneys at Law, 2020.
[4] Chris Matthews, “How Wyoming became the promised land for bitcoin investors,” MarketWatch, April 24, 2021; “What do Wyoming’s 13 new blockchain laws mean?” Forbes.com, March 4, 2019; HB0019 of 2018 Wyoming Legislature; and Erik Kuebler, “Wyoming House unanimously approves two pro-blockchain bills.” Bitcoin Magazine, Feb. 20, 2018.
